China Stimulus Vow Gives Fresh Boost to Risky Assets: EM Review - EcoFinBiz Blog

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China Stimulus Vow Gives Fresh Boost to Risky Assets: EM Review

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(Bloomberg) -- Emerging-market stocks and currencies rebounded from two weeks of losses as U.S. dollar weakness and China’s vow to keep supporting its economy overcame concern about the global growth outlook. Appetite for riskier assets also got a lift from China’s plans to cut the value-added tax and U.S. Federal Reserve Chairman Jerome Powell’s comments that interest rates can remain on hold.

The following is a roundup of emerging-markets news and highlights for the week ending March 15.

Asset Moves as of 4:20 p.m. in New York on Friday: Weekly
MSCI EM stocks index +2.6%
MSCI EM FX index +0.5%
Bloomberg Barclays EM local-currency government bond index (up to Thursday) +0.4%

Highlights:

  • A meeting between President Donald Trump and President Xi Jinping to sign an agreement to end their trade war won’t take place this month and is more likely to happen in April at the earliest, three people familiar with the matter said
    • People’s Bank of China Governor Yi Gang said the two sides have reached consensus on many crucial issues
    • Trump’s top trade negotiator said the U.S. must keep the option of raising tariffs on Chinese imports as a way to ensure Beijing lives up to a pact
  • China will cut the value-added tax effective April 1 and address economic downward pressure with larger-scale tax and fee cuts this year, Premier Li Keqiang said at a briefing after the closing of the National People’s Congress. Li also said the nation will rely on markets and use tools such as banks’ reserve requirement ratio
  • Powell’s comments on rates came in the same week that a report showed that a key measure of underlying U.S. inflation unexpectedly eased in February amid falling prices for autos and prescription drugs
  • North Korea’s Kim Jong Un will soon decide whether to halt nuclear disarmament talks with the U.S., in the latest sign of fallout from his failed summit with President Donald Trump last month, the AP reported
  • The Philippine peso was the worst performer for the week as central bank Governor Benjamin Diokno said the authority won’t intervene in foreign exchange markets as long as the currency stays within a reasonable range, adding that “right now it’s within that band.” He also reiterated there’s scope to ease monetary policy
  • Argentina’s peso topped all peers for the week, helped by a Friday rally after faster-than-expected price increases led the central bank to roll out a series of measures to tighten monetary policy

Asia:

  • China vowed to stick to targeted stimulus amid unemployment pressure
    • China still has some room to cut the amount of money banks must hold in reserve, but it’s much smaller than in previous years, PBOC Governor Yi said
    • The nation’s economic slowdown deepened in the first two months of the year, with industrial output posting a smaller-than-expected increase
    • The central bank and foreign-exchange regulator will reduce “gray rhino” risks in key areas and prevent abnormal financial market fluctuations, according to a central bank statement
    • Aggregate financing growth picked up in the first two months this year, according to the central bank
  • North Korea could be preparing to launch a missile or rocket in the near future, according to satellite images of activity in the country, U.S. radio network NPR reported, while the country’s state media said the world is blaming the U.S. for ending the Hanoi summit without an agreement
    • Trump’s envoy for North Korea called on United Nations Security Council members to stay united in pressuring Kim’s government to give up its nuclear weapons
  • South Korea’s unemployment rate unexpectedly fell in February to the lowest in eight months and the economy added the most new jobs since January last year
  • India’s rupee was among top performers last week; the nation will unveil election results on May 23 following six weeks of voting in a ballot that will determine whether Prime Minister Narendra Modi wins a second term as leader
    • India will continue to implement economic reforms irrespective of who wins the election, a key government adviser said
    • The central bank may buy 1.7 trillion rupees ($25 billion) of bonds in the year starting April 1, according to a Bloomberg survey of traders and economists, compared with an estimated record 3 trillion rupees spent this fiscal period
    • The central bank said it plans to inject $5 billion of liquidity via a 3-year dollar/rupee swap auction. Auction will be conducted between 9:30 am and 11:00 a.m. Mumbai time on March 26
    • Consumer prices climbed 2.57 percent in February from a year earlier
    • Softer inflation in India puts the central bank in a position to support economic growth, said former governor Bimal Jalan
  • The odds of another interest-rate increase by the Bank of Thailand at the March review are low, according to a member of its monetary policy committee
    • A global shift away from monetary-policy tightening is making it more difficult for the Bank of Thailand to raise its benchmark interest rate, its Senior Director Don Nakornthab said
    • Thailand may be able to sell more products after the U.S. decided to remove preferential tariff treatment for India and Turkey, according to Commerce Ministry official Pimchanok Vonkorpon
  • Bank Indonesia is ready to buy government bonds from the market, aiming to preempt foreign fund outflows, said Nanang Hendarsah, executive director for monetary management
    • President Joko Widodo looks set to secure a second term in an April 17 election, Kompas newspaper reported on Sunday, citing his strong performance in a survey of voters
    • The nation posted its first trade surplus in five months in February as imports slumped
  • Malaysia’s industrial production growth slowed to 3.2 percent in January
  • The Philippine economy is at risk of posting its worst expansion in eight years due to a delay in the approval of the nation’s budget, according to Economic Planning Secretary Ernesto Pernia
    • Exports decreased for a third month in January while imports unexpectedly increased
    • Foreign direct investment is projected to be broadly the same as that in 2018 although this will be reassessed in April-May, central bank Deputy Governor Diwa Guinigundo said

EMEA:

  • Turkey’s gross domestic product shrank a seasonally adjusted 2.4 percent last quarter from the previous three months, sending the economy into its first recession in a decade
  • The ruble was among the top performers; Russia’s bond-auction record stood for just two weeks as yield-hungry investors piled into the Finance Ministry’s latest limitless debt sale, once again shrugging off the lingering risk of U.S. sanctions
  • Mozambique is taking into account U.S. Department of Justice claims that $2 billion of debt the government contracted was a fraudulent scheme, as it talks to creditors about restructuring the loans, Prime Minister Carlos Agostinho do Rosario said
  • Romanian inflation rebounded from the lowest level since 2017 to exceed the upper-end of the central bank’s target range, though analysts don’t see increases in borrowing costs in the near term
  • Czech inflation exceeded analyst and central bank expectations for a second consecutive month, supporting arguments for policy makers to resume interest-rate increases
  • Benin, which has a GDP of about $10 billion, is readying a series of meetings with would-be takers for a first ever sale of Eurobonds, according to a person familiar with the matter
  • South Africa may have to pay a premium if it taps international bond markets before a credit-rating review later this month and elections in May, according to investors who attended meetings with Treasury officials in London. Ghana may also be preparing to issue bonds
  • Lenders in the United Arab Emirates will need to extend the maturity of property loans, according to the head of the country’s banking body, as the real estate market shows no sign of recovery
  • Moody’s Investors Service, which downgraded Oman’s credit rating to junk last week, said the cash-strapped sultanate won’t require a bailout similar to the one that Bahrain got in the next 12 to 18 months
  • Egypt’s annual urban inflation accelerated for a second month, complicating the central bank’s path forward after its first interest-rate cut in almost a year

Latin America

  • The Argentine central bank boosted its stock of 7-day notes to more than 1 trillion pesos, the highest since they were offered for the first time in January 2018, as it absorbs pesos to control inflation
    • Key interest rate keep rising amid central bank’s push to stem the peso volatility
  • Brazil’s retail sales rose by the most since August in January, rebounding from a deep downturn at the end of 2018 and helping balance concern about the economic outlook after disappointing industrial production data earlier in the week
    • A shooting in a Sao Paulo public school that left 10 people dead renewed a debate over President Jair Bolsonaro’s push to loosen gun controls
    • The new central bank chief, Roberto Campos Neto, stressed the need for the monetary authority to have formal autonomy by law, saying that would better equip policy makers to keep inflation low
    • Brazil lawmakers set up the first Congressional committee due to scrutinize the government’s pension bill, a key step toward approving it
  • Mexico’s President Andres Manuel Lopez Obrador contradicted an undersecretary who suggested that a controversial refinery project would be delayed, saying construction remains on schedule
    • Industrial production fell less than expected in January
    • The Mexbol stock index, which has posted the world’s biggest losses over the past six months, has brought at least one valuation metric to the lowest level in eight years
Upcoming Data and Economic Releases
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  • For Eastern Europe, click here
  • For Latin America, click here

--With assistance from Colleen Goko, Selcuk Gokoluk, Netty Ismail and Brendan Walsh.

To contact the reporters on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net;Aline Oyamada in Sao Paulo at aoyamada3@bloomberg.net

To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, ;Philip Sanders at psanders@bloomberg.net, ;Dana El Baltaji at delbaltaji@bloomberg.net, Shamim Adam

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